Elizabeth Warren was elected to the Senate with the expectation that she’d make bold use of her bully pulpit. Her first proposed bill, which would dramatically lower student-loan interest rates, fits that profile. Warren has gotten considerable attention for her bill, which would reduce the interest rate on some student loans to 0.75 percent, the same rate the Federal Reserve currently charges to banks for short-term lending. This has allowed Warren to talk about the need to invest in education, while also — in something of a non sequitur — criticizing big banks for what she has long complained is favorable treatment from the government.
Warren’s proposal isn’t as far-reaching as her rhetoric suggests. The bill applies only to Stafford loans, a common form of federally subsidized college loan available to low- and middle-income families. It is intended as a stopgap measure to stave off an automatic rise in Stafford interest rates: If Congress takes no action by July 1, the interest rate on new Stafford loans will double, from 3.4 percent to 6.8 percent. Critics worry, with some justification, that rock-bottom interest rates on student loans would exacerbate the bubble in higher-education pricing — encouraging students to go into even greater debt, and discouraging colleges from lowering tuition costs. But the Stafford loans alone aren’t likely to cause a huge distortion. The loans are currently capped at $8,500 per year. Warren’s bill would only apply to new loans, and would only be effective for one year.